Cofounder Deadlock
And other ways startups die
Getting a cofounder is sort of like getting married. You split half the assets, co-parent a child (your company) and have to make a bunch of very important decisions under high stress with very little information to base them on. Fun.
Choosing a cofounder is one of the most important steps in starting a company (and yes you can do it alone, which is hard in other ways), and most people do it haphazardly. They say “I liked working with this person at xyz company“ or “this person is my best friend of course we should do this together“ and shoot from the hip. The problem with choosing cofounders this way is that you never really get to see them in those stressful, make-or-break moments prior to being in the first one together and oftentimes that first moment is one of seemingly life or death.
There are two core questions when working with a cofounder: do we both understand the risks (ie is doing a startup good for our lives right now) and how do we tie break decisions?
The risk question is really more one of “do you really want to do this?“ which is surprisingly tricky. Different people have different motivations for starting companies. Most often though folks won’t be honest with themselves that it’s ego driven, not driven from a place for passion for a problem or market. I’ve written about finding cofounders, but one of the easiest ways to find a good cofounder is to just go build something and see who tags along and is useful. You can also recruit and trial (before incorporating) but that is a longer process that requires more resources.
The second question is: how do we tie break decisions? I see sooooo many companies die in this mode where cofounders can agree on something that sticks. You need to have a tie break. Many VCs will advocate for 50/50 splits between cofounders, and while this can be a good thing for VCs, it’s often not the best for the founders themselves because when the going gets tough and we need to decide some major choice where there’s deadlock how do we decide?
A pretty common failure mode is choosing to pivot or double down. This is always a stressful time because both cofounders know what we have isn’t working but they don’t exactly know how so there’s a game of convincing the other to take another path (which also might not work). In these moments you need a framework for who breaks the tie.
Good read below on cofounder roommate agreements below that can help give you a framework for decision making:
The best and ultimate way though is to either have an odd number of cofounders (natural tie break) or a single voting share that tie breaks at the corporate level. This way it’s clear who gets the final call. Be aware, in the case of social breakup between cofounders (this happens) then the person with the voting share is the one who stays and the person without it goes (just math). What I’ve found is that in those situations 50/50 can sometimes be better because if the person with the voting share doesn’t have the skills / network / talent to take the company forward the company just dies by default (and this is why VCs like the 50/50 split because it often means the “key man (person)“ stays.
Hopefully this is insightful, and helps someone set up a cofounder relationship right. The main insight I have is that you shouldn’t rush into cofounding. Date a little first before getting married so that you’re sure you’re getting married to the right person.